[1992] FCA 558; (1992) 28 ALD 620

Defence Forces - Retirement and Death Benefits - member of Royal NZ Navy on transfer to Royal Australian Navy failed to elect to take part of retirement allowance as lump sum - whether "transfer value became payable" within meaning of s.69 Defence Force Retirement and Death Benefits Act 1973 - failure to elect based on erroneous advice from respondent - scope of respondent's discretion - whether decision-maker's authority can be extended by estoppel.

Edelsten v Health Insurance Commission [1988] FCA 258; (1988) 90 ALR 595

Formosa v Secretary, Department of Social Security [1988] FCA 291; (1988) 81 ALR 687

Defence Force Retirement and Death Benefits Act 1973: ss 68, 69

Solicitor for the Respondent: Australian Government Solicitor

Note: Settlement and entry of orders is dealt with in O.36 of the Federal Court Rules.

SPENDER, RYAN AND COOPER JJ. This is an appeal from a judgment of a single Judge of the Court (Neaves J.) who dismissed an application by way of appeal under s.44(1) of the Administrative Appeals Tribunal Act 1975. The decision of the Administrative Appeals Tribunal affirmed a decision said to have been made by the Chairman of the Defence Force Retirement and Death Benefits Authority ("the Authority") on 6 March 1990 and later confirmed by the Authority on 16 November 1990. The effect of the decision of the Authority was that, as the appellant had not elected to commute his entitlement from the New Zealand Government Superannuation Fund, there was no amount which could be accepted as a transfer value payable to the Commonwealth under ss.68 and 69 of the Defence Force Retirement and Death Benefits Act 1973 ("the Act").

2. Those sections occur in Division 2 of Part IX of the Act which is headed "Contributing Members Who Have Preserved Rights from Previous Employment". Section 68(1)(a) provides:

"(1) In this Division:

(a) a reference, in relation to a contributing member, to

a transfer value payable to or in respect of the member

under a superannuation scheme applicable in relation to any

employment in which he was employed at any time before the

date on which he became an eligible member of the Defence

Force is a reference to a benefit by way of a lump sum

payable to or in respect of the member under that scheme

upon the termination of the employment otherwise than on the

ground of invalidity or of physical or mental incapacity to

perform the duties of the employment, being a benefit that

was based wholly upon contributions under that scheme by the

employer or was based partly upon such contributions and

partly upon contributions under the scheme by the member"

3. It is common ground that there was a superannuation scheme applicable in relation to the appellant's previous employment in the Royal New Zealand Navy and employment which preceded that. His employment in the Royal New Zealand Navy terminated upon his accepting a commission in the Royal Australian Navy and so was not on the ground of invalidity or physical or mental incapacity. It is also undisputed that the appellant on termination of his service in New Zealand was entitled under the New Zealand scheme to a benefit that was based partly upon contributions by his employer and partly upon contributions by the appellant himself. As received by the appellant, that benefit has been in the form of an annual retiring allowance of N.Z.$4,222 a year.

4. The learned primary Judge recorded at p 5 of his reasons that:

"It is also common ground that it would have been open to the

applicant to elect to surrender his right to a proportion (not

exceeding one-fourth) of the retiring allowance and to receive

instead payment out of the Fund of a sum equal to 9 times the

amount by which his annual retiring allowance was reduced pursuant

to the surrender. Such an election was required to be made before

the applicant received any instalment of his retiring allowance,

an event which appears to have occurred on 14 May 1979. If such

an election had been made, the annual retiring allowance otherwise

payable would have been reduced by the same proportion as that

elected to be surrendered. The applicant did not, within the time

permitted, elect to surrender any proportion of the retiring

allowance to which he was entitled and he commenced to receive,

and continues to receive, an annual retiring allowance under the

relevant provisions. He asserted before the Tribunal that his

failure to make an election to surrender his right to a proportion

of the retiring allowance to which he was entitled was due to his

having received, in 1978 and 1979, advice from the Authority that

a lump sum received by way of commutation of a right to an annual

retiring allowance would not answer the description of a transfer

value for the purposes of s.69 of the Act."

5. The correctness of that recital was accepted before this Court. Section 69 of the Act, so far as is relevant, provides:

"(1) Where a person who becomes a contributing member has, at any

time before becoming a member, been in employment within or

outside Australia upon the termination of which a transfer value

became payable to or in respect of him on or after 25 May 1971

under a superannuation scheme applicable in relation to that

employment, and:

(a) the member, by notice in writing given to the Authority

within a period of 90 days after the date on which he

becomes a contributing member, or within such further period

as the Authority, in special circumstances, allows, elects

to pay to the Commonwealth an amount equal to the amount of

that transfer value or, if 2 or more transfer values became

payable, the sum of the amounts of those transfer values;

and

(b) that amount is, before the expiration of that period of 90

days or that further period, as the case may be, paid to the

Commonwealth;

the succeeding provisions of this section have effect.

(2) So much of the amount paid to the Commonwealth as is equal

to the employee component of the transfer value, or to the sum of

the employee components of the transfer values, as the case may

be, shall, to the extent to which it was payable to the member

upon the termination of the employment in respect of which the

transfer value or any of the transfer values became payable

irrespective of whether he engaged in further employment, be

deemed, for the purposes of this Act, to be contributions paid to

the Commonwealth by the member under section 17.

(3) The total period of effective service of a contributing

member referred to in subsection (1) of this section, or, of a

contributing member in respect of whom a transfer value was paid

to the Board under section 82R of the previous Act, shall be

deemed to be increased by such period as is determined by the

Authority, having regard to such matters as are prescribed for the

purposes of this section, as being appropriate.

...

(5) For the purposes of this section:

(a) the employee component of a transfer value payable to or in

respect of a person is the part (if any) of that transfer

value that was based upon contributions made by the person;

and

(b) the employer component of a transfer value payable to or in

respect of a person is the part of that transfer value that

was based upon contributions by an employer or employers of

the person."

6. The appellant has consistently maintained before the AAT, before Neaves J., and before this Court that a transfer value became payable in respect of him under the New Zealand Superannuation Scheme upon the termination of his service with the Royal New Zealand Navy.

7. The critical issue of statutory construction has been refined through the successive stages of this litigation. It is whether the phrase "upon the termination of which a transfer value became payable" in s.69 comprehends a benefit which a member could have elected, but did not elect, to receive under a superannuation scheme applicable in relation to his or her earlier employment.

8. The essential features of a "transfer value" as defined by s.68(1) are:

(i) it must be a benefit by way of a lump sum;

(ii) it must be payable to or in respect of the member upon the

termination of his or her employment;

(iii) it must be based upon contributions made under the relevant scheme

wholly by the employer or partly by the employer and partly by the

member.

9. In the present case the amount ordinarily payable to Mr Glass was not by way of a lump sum. It was an annual retiring allowance. To bring into existence a benefit by way of a lump sum, it was necessary for the appellant, as Neaves J. found, "to elect to surrender his right to a proportion (not exceeding one-fourth) of the retiring allowance and to receive instead payment out of the Fund of a sum equal to 9 times the amount by which his annual retiring allowance was reduced pursuant to the surrender."

10. It was contended by the appellant that the possibility of his making that election was sufficient for the benefit under the New Zealand scheme to qualify as a benefit by way of a lump sum payable to or in respect of him. That contention involves treating "payable" in s.68(1) as equivalent to "which is payable or could become payable". We can find no warrant in the legislation for giving it that extended meaning. "Payable" is an ordinary English word signifying that something is presently capable of being paid. If an amount is not capable of being paid unless and until a specified election shall have been made, or some other event shall have happened, it is not "payable" in accordance with that ordinary meaning. This view conforms with that expressed by Gummow J. in Edelsten v Health Insurance Commission [1988] FCA 258; (1988) 90 ALR 595 at 599.

11. We are prepared to accept that, had the appellant made the election specified by Neaves J., a lump sum would have been payable in respect of him upon the termination of his earlier employment. We also accept that such a sum would have been based partly upon contributions made by the appellant. However, for the reasons indicated, there was not presently payable to him a transfer value being a lump sum which, in terms of s.69(1), upon the termination of his New Zealand employment, became payable to him.

12. The tense of the verb "became" in s.69(1) reinforces the view that "payable" in both that sub-section and s.68(1) means "capable of being paid presently or without more" upon the termination of the earlier employment. If the ability to pay a sum depends upon the effluxion of time or the happening of some other event, it cannot be said, as a matter of ordinary usage, that the sum "became" payable before that specified date or the happening of the stipulated event. All that can then be said is that the sum "might become payable". This usage is almost invariable where, as here, the stipulated event is, or involves, the fixing of the amount of the sum.

13. The appellant did not deny that the ordinary English meaning of "payable" is "capable of being paid" as indicated by a number of general and legal dictionaries. Nevertheless, he went on to submit that "capable" in that definition implies only a discretionary power or capacity to act. However, the epithet "payable" is attached as a matter of ordinary usage to an inanimate object, as it is in this legislation to a "lump sum" and a "transfer value". Used in that way, it imports no discretion or choice in the presumptive payer whether or not to make the payment. Any discretion is only as to whether or not to require payment and resides solely in the presumptive payee.

14. The appellant sought to derive support for his interpretation of "payable" in sub-ss.68(1) and 69(1) from the imputation by s.68(3) of a transfer value to the surrender value of a life policy. That sub-section provides:

"(3) Subject to subsection (4), a transfer value shall be deemed,

for the purposes of this Division, to have become payable in

respect of a person under a superannuation scheme upon the

termination of any employment if, upon the termination of

that employment, he had the legal title to a life policy, or

was entitled to have the legal title to such a policy

assigned to him, being a policy the premiums for which were,

while he was employed in that employment, paid in whole or

in part by his employer, and, in that case, the surrender

value of the policy as at the date of the termination of the

employment shall be taken to be the amount of the transfer

value."

15. The appellant's reliance on that sub-section, as we understand it, was based on the assertion that it attached a transfer value to the surrender value of a life policy without requiring the member actually to surrender the policy. Accordingly, it was argued, if s.68(1) requires a member whose existing superannuation benefit arose under a superannuation scheme to elect to receive at least part of that benefit as a lump sum in order to acquire a transfer value, the Act unreasonably discriminates between that member and a member whose existing superannuation benefit is embodied in a life policy conferring a right to an annuity upon the termination of the earlier employment. The latter member, Mr Glass contended, could continue to receive the annuity in full without losing the election to pay to the Commonwealth pursuant to s.69(1) an amount equal to the surrender value of the policy.

16. In our view, this argument fails to acknowledge that sub-ss.68(1) and 68(3) are each predicated on a capital sum or fund generated by way of a superannuation scheme passing out of the control of the former employer. Sub-section 68(1) does so by attaching a transfer value to a lump sum payable upon the termination of the former employment. To the extent that a lump sum becomes so payable, it ceases to be part of the capital outside the control of the former employee that funds any continuing or future entitlement which he may have to payments of superannuation. Correspondingly, s.68(3) fixes on a life policy, the legal title to which is assigned or assignable to the member upon the termination of his former employment. By ascribing a transfer value to the surrender value of such a policy, s.68(3), like s.68(1), fixes on an asset, which, by virtue of the assignment occurring upon termination of the former employment, ceases to be part of the capital outside the control of the former employee which funds his continuing or future entitlement to superannuation in the form of an annuity or otherwise. (If the former employee continues to receive an annuity or other periodic payment under the policy, that occurs solely because of a decision taken by that employee as the new legal or equitable owner of the policy).

17. For these reasons we consider that the appellant's primary argument fails and that Neaves J. correctly held that no transfer value became payable to the appellant in 1979 under the New Zealand superannuation scheme.

18. An alternative argument advanced by the appellant was that the Authority did not take into account the fact that his failure to commute into a lump sum one quarter of his annual allowance under the New Zealand scheme was directly attributable to erroneous advice from the Authority. A note dated 30 March 1979 on the Authority's file recites that one of its officers, a Mr Jeffery, advised the appellant "that lump sums realised by commutation could not be regarded as Transfer Values". That advice, as the respondent now concedes, was clearly wrong. It is equally clear from a letter dated 20 March 1979 from the appellant to the Authority, that had he not received that erroneous advice he would have elected to commute one quarter of his New Zealand pension to a lump sum and paid to the Commonwealth under s.69(1) of the Act an amount "of the order of $9,000" as being equal to the resultant transfer value.

19. Accordingly, the appellant contended, the Authority should have exercised its discretion by putting him in the position which, but for the erroneous advice, he would have occupied upon payment to the Commonwealth in 1979 of an amount equal to a transfer value of about $9,000. The short answer to this submission is that the only discretion reposed in the Authority in this context is that conferred by s.69(1)(a) to allow, in special circumstances, a further period for the payment to the Commonwealth of an amount equal to the amount of the transfer value. There is no discretion to treat a member, contrary to the fact, as a person to, or in respect of, whom a transfer value became payable upon the termination of his or her former employment.

20. A statutory authority cannot by estoppel extend the authority of a decision-maker beyond that given by the statute; (see Formosa v Secretary, Department of Social Security [1988] FCA 291; (1988) 81 ALR 687). Equally, in our view, an authority cannot, on the basis of a fiction, give itself scope for the exercise of a discretion which would not otherwise be available under the Statute.

21. For these reasons the appeal must be dismissed. However, it must be repeated that this whole unfortunate trail of litigation derives from the concededly erroneous advice given in 1979 for which the respondent is responsible. The appellant has not acted unreasonably in taking his claim for redress as far, as of right, as he could. Accordingly, we make no order as to costs.